Almost no one likes the current tax code. It’s big. It’s complex. Many think it’s “unfair.” Which is why Republican presidential candidates are eager to float their own ideas for a new tax code. So far, both of the recent tax system overhauls are based on a flat tax structure. Herman Cain has the now-famous 9-9-9 plan, and Rick Perry is offering his optional 20% flat tax.

How would either of these taxes impact you?

Cain’s 9-9-9 Plan

Herman Cain’s 9-9-9 plan has been drawing a lot of fire, especially since the Tax Policy Center pointed out that 84% of taxpayers would see a tax raise. Originally, the 9-9-9 plan offered no deductions and no loopholes, with the exception of a break for charitable donations. All earned income would be taxed (but not dividend, interest or capital gains) at 9%, businesses would all be taxed at 9%, and there would be a 9% national sales tax on all new goods. Some estimates pointed out that the poorest would see a significant percentage their income eaten up by taxes as they paid sales tax on items like food, and actually started paying the income tax.

The result of the outcry was some back-pedaling for Cain. He has since modified his plan to provide low-income tax breaks, and even exempt those at or below the poverty line from the income portion of the tax. Even so, for many folks, the Cain plan could still result increased costs due to the national sales tax, which would be added on top of state sales tax.

Additionally, some who already pay taxes would see an increase in their income tax bills under the 9-9-9 plan. I would. My itemized deductions and other breaks put me in a situation where paying my marginal tax rate now is less than what I would pay if I paid 9% of my income without deductions. Even with a deduction for charitable contributions, I would end up paying almost double in income tax under Cain’s 9-9-9 plan.

Perry’s Options 20% Flat Tax

Rick Perry, on the other hand, is offering voters a choice: Pay a 20% flat tax, or stick with the current system. Like Cain’s plan, taxes wouldn’t be levied against dividend income and capital gains, and the estate tax disappears. However, perhaps learning a lesson from the reception of the 9-9-9 plan, Perry has deductions built in. There’s an exemption for $12,500 of income. Each dependent results in a $12,500 deduction. And, for those with incomes of less than $500,000 a year, the mortgage interest deduction, charitable contribution deductions, and sales tax and state tax deductions all remain in place.

Oh, and Perry makes his plan optional. Run the numbers, and see what works best for you in terms of lower tax liability, and pick what you prefer. Like Cain’s plan, some might find that the lack of deductions means that paying 20% on a higher income could result in higher taxes than paying on a lower income in a marginal tax bracket with a higher percentage attached. Plus, Perry doesn’t make it clear whether this would be a permanent choice, or whether the choice would disappear over time.

What is clear, though, is that Perry’s plan would require massive cuts to government spending. While such a move might be welcomed, at the same time it would probably also mean cuts to programs that you might benefit from. And it could also make things difficult in terms of funding infrastructure projects and other projects that we come to associate with an elevated quality of life.

What do you think of these flat tax proposals? Do you like either one? Do you have a tax overhaul idea of your own?

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I believe infrastructure funding has been underfunded for some time now. Nothing would drastically change with a different plan. It has always been a low priority. I always thought infrastructure should be funded by a user fee anyway. It’s the only fair way to do so.

Although Perry’s plan benefits me more, I see it as actually further complicating the tax code by providing two totally different structures…based on what the taxpayer wants deduced by their calculations?!? The majority of my friends and family shrug taxes off onto a professional and don’t even think about them until it’s Refund time. Personally I’m a tax nerd, and a big proponent of a fair/flat whatever system that takes about 95% of pages out of the current code and burns it. The current system are so convoluted that no two Americans are even on the same plan (AMT, standard vs. itemized, EIC, mortgage, student, charitable, HoH, etc, ad infinitum). The currency we are all paid in is the same, and percentages are exactly what they are, a percentage of what you earn, so why must the process of claiming our income and our tax debt be so confusing and riddled with inconsistencies based on your ability to either be poor enough to have no tax burden or rich enough to pay an accountant good enough to finagle you out of your responsibility.

9-9-9 is simple but I don’t think most people are doing the calculations correctly to compare. Also, most people don’t understand retired people would be exempt. They need to go to his website and read the details.

But don’t you think it would add money to the economy? No longer will illegals, people working under the table or people paying no taxes be exempt.

It seems strange to me to go thru all of the work of creating a flat tax and then offering a choice. I’m with Jason. Let’s get rid of 95% of the code – simplify, simplify, simplify.
I do find it funny that so many folks don’t want to cut spending and looking for others taxes to rise, but as soon as they end up in the cross hairs ” no way!” Too funny, but that’s human nature, I guess.
My main contribution, besides simplification, is that I think dividends should be taxed as ordinary income, but I would like to see us drop taxes on corporations for the earnings they pay in the form of dividends.

Rick Perry and Herman Cain are at least trying to solve the problem, but what about Ron Paul’s plan to abolish the IRS completely? All you’d pay is state income taxes if your state has them. Federal government would get it’s income from tariffs and spending levels would drop to late 1990s level.

A few things that were not covered in Herman Cain’s plan that should be addressed:

1. There would no longer be payments for Social Security tax or Medicare tax, thus resulting in an increase in take-home pay;
2. Do you really think that business competitive pressures would not result in lower costs for goods and services?

I think if these things are considered, then you will end up with more money in your bank account from the same work under this plan than under the current scheme.

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